The World Bank's New Poverty Estimates: Digging Deeper into a Hole

EXCERPT: The World Bank released what it refers to as 'updated' global poverty estimates. These new numbers are based on a new worldwide price survey and a new benchmark international poverty line of $1.25 2005 PPP which replaces earlier benchmark poverty lines (of $1.08 1993 PPP and $1.00 1985 PPP, both widely referred to as "$1 per day") corresponding to earlier base years. The revised figures purport to estimate world poverty figures for a range of years since 1981, and thus crucially affect our understanding of the world over the last quarter century of globalization.

Many aspects of the global order, such as the movement toward freer trade, as well as national institutions and policies, are defended by referring to their effect on the poor. The Bank's poverty estimates are thus central to their assessment. Moreover, the Millennium Development Goals are defined in terms of these estimates, making this revision of great importance for determining whether the world is on track to reduce poverty by the amount required by the Goals.

Can the Bank's new estimates be trusted? Can they be trusted more than its own earlier greatly lower poverty estimates, which they are intended to replace? Unfortunately, the Bank's new estimates are based on the same methods it used earlier and are undermined by the same problems as the earlier estimates.

Two problems are foremost, as noted in a widely cited critique by Sanjay Reddy and Thomas Pogge. The first is that the Bank's chosen international poverty line is far too low to cover the cost of purchasing basic necessities. A human being could not live in the US on $1.25 a day in 2005 (or $1.40 in 2008), nor therefore on an equivalent amount elsewhere, contrary to the Bank's claims. Indeed, it appears to be far too low in many countries to account for the cost of purchasing basic necessities. That this is so is self-evident in the case of the United States—the base country in whose units the international poverty line is defined. One's daily income can be a great deal higher than $1.25 and still leave one unable to fulfill basic nutritional requirements, let alone the other requirements of a minimally decent life. Since the international poverty line is defined in purchasing power adjusted units, meant to capture a constant level of purchasing power across countries, this incoherence is not easy to overcome.